Positivo Tecnologia facing the challenges arising from the new coronavirus | Read more

Risk factors

Investment in the Company’s securities involves exposure to certain risks. Before making any investment decision in any of the Company’s securities, potential investors should carefully review all information in this Reference Form, the risks mentioned below and the Company’s financial statements and accompanying notes. The Company’s business, financial condition, operating results, cash flow, liquidity and/or future business may be adversely affected by any of the risk factors described below. The market price of the Company’s securities may decrease due to any of these risks and/or other risk factors, in which case potential investors may substantially lose or fully lose their investment of the Company’s securities. The risks described below are those that the Company knows and believes that, on the date of this Reference Form, may adversely affect the Company and its subsidiaries. In addition, additional risks not known or considered irrelevant by the Company on the date of this Reference Form may also adversely affect the Company.

For the purposes of this section “4. Risk Factors”, unless expressly stated otherwise or as the context so requires, mention that a risk, uncertainty or problem may or will cause or will have an “adverse effect” or “negative effect” to the Company or similar terms, means that such risk, uncertainty or problem may or could have a material adverse effect on our market share, reputation, business, financial condition, operating results, cash flow, liquidity and/or future business of the Company and its subsidiaries, as well as the price of the Company’s securities. Similar expressions included in this section “4. Risk Factors” must be understood in this context.

Notwithstanding the subdivision of this section “4. Risk Factors”, certain risk factors in one item may also apply to other items.

a. to the issuer

The Company may not be able to fully implement its business strategies.

The Company may not be able to satisfactorily implement its strategy to optimize the strength of its brands, expanding its sales volume and increasing its operating performance, resulting in a decrease in its growth rate and operating results, which may have an adverse effect on the Company.

We cannot guarantee that the Company’s capacity to manage the growth will be successful. In addition, the Company’s performance may be affected by the possible adverse effect of macroeconomic variables, such as the unemployment rate, US dollar exchange rate, credit offer and consumer income.

If the Company is unable to introduce innovative and technologically advanced products in an industry characterized by fast obsolescence of products, its growth and efforts to maintain its profitability may be adversely affected.

The Company’s business model depends on its ability to quickly introduce products with technology and design that meets the needs of its consumers. To be successful in this, the Company depends on several factors, such as the availability of new products, effective quality control, speed of its efforts to launch the product, access to technology suppliers, right estimate of demand, training its salespeople and consumer acceptance to new technologies and designs.

The computer, tablet and mobile phone industry is characterized by a short life cycle of the equipment due to rapid changes in technology and consumer preference, as well as the continuous technological evolution of products, which helps mitigate the path of price decrease. The Company may not have access to new technologies or not successfully incorporate this new technology into its products.

In addition, network and internet protocol standards, as well as other standards adopted by the Company’s industry, are subject to fast changes and evolution, and the Company cannot guarantee that the standards adopted to develop new products will be or will remain efficient and/or competitive in the Company’s market.

The introduction of new products, technologies and designs leads to issues regarding the speed of acceptance by consumers and, therefore, the estimated demand. Additionally, the technology industry is going through a digital convergence process, characterized by the integration of media and the introduction of new devices, which has reduced the demand for traditional computers. If unable to adjust its product portfolio to this process, as well as correctly estimate the demand for new products and devices or adapt them to the wants and needs of consumers, the Company may face a decrease in its revenue and problems to manage its inventory, leading to an increased risk of product shortage or obsolescence, or possible excess inventory, which may adversely affect the Company’s financial condition and operating results.

The Company may not be able to identify failures in the production process, which may damage the quality of its products and, therefore, may lead to increased technical support expenses.

Failures in the Company’s quality management, assembly process and/or the components used may lead to an increase in the failure rate within the warranty period and generate an increase in technical support expenses. Defects, errors and any delays or inability to fix them may lead to negative consequences, including: (i) cancellation of orders; (ii) additional expenses with warranty; (iii) delays to collect receivables; (iv) cancellation of contracts; (v) loss of acceptance of the Company’s products in the market; (vi) diversion of funds for research and development that could be used to create new products; (vii) possible indemnity proceedings; (vii) and market reputation issues. The occurrence of such defects or delays and the impossibility of correcting them may adversely affect the Company’s reputation, results and financial condition. In addition, they can lead to a shortage of parts to meet the warranty calls, leading to delays in customer service, increased costs with technical support and, therefore, a high rate of court proceedings, such as Procon, which may even adversely affect the Company’s image and results.

The Company also operates in the trade of software and, similarly, such products are subject to failures related to the project design or systemic failures, including in the respective software upgrades. Such failures may create liabilities for the Company, as well as negatively affect its financial results and image.

The insurances of the Company may not fully cover the risks to which the Company is subject or may not be available at a reasonable cost.

The occurrence of losses or other liabilities that are not covered by the insurance, or that exceed the limits of the Company’s insurance, may lead to significant unforeseen additional costs, which may have an adverse effect on the Company.

The Company has an insurance to cover material damages, inventories, loss of profits, credit, lawsuits, administrative proceedings and civil liability proceedings against the management, officers or services. The Company cannot guarantee that the insurance will always be available or will be enough to cover damages arising from claims. In addition, there are certain types of risks that may not be covered by the Company’s insurance.

Additionally, when its current insurance expires, the Company cannot guarantee that it will be able to renew the insurance with sufficient and favorable terms.

The termination or loss of services from strategic people to the Company or its inability to attract and retain other strategic people may adversely affect its business.

The Company’s success and future growth depends on its ability to identify, attract and retain qualified employees and members of the management to occupy strategic positions within its structure and guide several aspects of its business. The market in which the Company operates is competitive and the Company’s inability to attract and retain employees and members of the management in strategic positions, attract new talent, maintain the services of strategic people or the eventual death of any of the members of the management may have an adverse effect on the Company.

In addition, hiring, training and integrating a new member of the senior management, internal or external, may be time consuming or unsuccessful. The loss of any member of the Company’s senior management, including as a result of criminal proceedings, and/or any difficulties to replace such member with a professional with similar experience and qualifications could significantly affect our maturity and development, as well as lead to material adverse effects in our activities, financial condition and operating results.

Decisions against the Company in legal or administrative proceedings may adversely affect its business, financial condition and operating results.

The Company, its members of the management and/or its controlling shareholders are and/or may become defendants in administrative, judicial and arbitration proceedings involving civil, tax, labor, environmental and criminal matters, as well as sanctioning/punitive administrative proceedings in regulatory entities such as the CVM, COAF, among others.

Unfavorable decisions in lawsuits and administrative proceedings in which the Company and/or its controlling shareholders are party may adversely affect its business and financial conditions and its operating results may be adversely affected by decisions against the Company in proceedings that eventually reach substantial figures, proceedings that prevent the Company from operating according to its plans or that the Company will have, partially or fully, enough provisions for all liabilities eventually arising from these proceedings. Decisions that affect the Company’s reputation or that go against the Company’s interests and from operating according to its plans or that eventually reach substantial figures without adequate provisions may adversely affect the Company’s finances, operations and/or reputation and, therefore, at the market price of its shares. For information on the Company’s relevant court or administrative proceedings, see Items 4.3 to 4.7 of this Reference Form.

The Company may be party to new administrative and court proceedings of civil, regulatory, tax, labor or criminal nature. Also, the Company and the members of its management may be convicted in court judicial and administrative proceedings in which they are party. Should this occur, the Company’s provisions may not be enough to pay such convictions, therefore, its image and the market price of its shares may be adversely affected.

The Company’s business is subject to seasonality.

Demand for computers in the retail market is usually lower in the first quarter, due to the seasonality of this market with the cyclical allocation of resources by consumers throughout the year. Thus, seasonality may affect the Company’s net sales, operating results, cash flow and inventories.

In addition, seasonality may affect the Company’s working capital, depending on the maturity of payments to suppliers for inventories purchased and the decrease in sales volume, which usually occurs after the Christmas sales season, which may eventually extend until the end of the end of the first half of the subsequent year.

Thus, seasonality may adversely affect the Company’s business, finances, operating results and share price.

Timely monitoring the integration of different channels through which the Company operates (retail and direct and indirect sales force) and its due use are key for the Company’s business.

The Company’s products are sold through several means. In the physical environment, the Company uses a wide network of retailers, operating throughout the Brazilian territory. In the online environment, the Company operates through marketplace channels and has its own online channel. The expansion and integration between these channels are part of the Company’s long-term strategy. In this sense, the expansion of digital sales channels through e-commerce and marketplace may increase the dependence on the evolution of the national network (internet) system, which may adversely impact the Company’s sales growth and financial result.

The Company cannot guarantee that its expansion strategy for the sales channel will be successful. The lack of speed or the inability to increase the integration of digital platform with the retail stores of its retail-customers may adversely and negatively affect its business, activities, financial condition and operating results.

Additionally, regarding the e-commerce activities, competitive pressures from its competitors may affect the effectiveness of the use of such channel, especially regarding competitors eventually using social media more efficiently.

The Company is subject to risks related to the management of its inventory.

The Company is subject to several risks related to the aftermarket and inventory optimization, such as seasonality, fast changes in product cycles and prices, defective goods, changes in the consumer demand and consumer spending patterns and other factors. Demand for the Company’s products can change significantly between the time the Company buys products from its suppliers and the time the Company sells them to retailers, marketplaces and end consumers, which can decrease its ability to sell products in the inventory.

In addition, it cannot be guaranteed that the Company will correctly select new products to be manufactured and/or imported, or that its initial demand estimate for such product will be maintained or correct. Purchasing certain products may require long delivery times, as well as significant down payment, and the Company may not be able to return or exchange such products with their suppliers. Any of the above factors may adversely affect the Company’s operating results.

The delivery of products to the Company‘s retail-customers, marketplaces and consumers depends on the Company‘s transportation and infrastructure systems.

Sales made by the Company through e-commerce are forwarded to consumers through Correios (Post Office) and the other operations of the Company, which depend on the continuous operation of logistics infrastructure, including ports, highways and other transportation means used by the Company or its service providers, suppliers, retail-customers and marketplaces.

Thus, any adverse event (strike, fire, logistical problems, flood, theft, among others), any interruption or significant decrease in services provided by the Post Office in the transportation infrastructure, the operation of the transportation infrastructure or even any inability to transport products between these facilities and/or to suppliers or customers for any reason may delay or prevent the distribution of the Company’s products, harming product demand or prices and preventing or delaying the delivery or imposing additional costs, which may reduce sales and adversely affect the Company’s business, operating results and financial condition.

The construction of industrial plants and the expansion of existing plants have risks that may negatively impact the Company‘s results.

The construction, expansion or optimization of the Company’s current industrial plants located in Curitiba and Manaus, or the construction of new industrial plants are subject to the risks of not obtaining environmental permits and/or licenses required for its operation, lack of suitable suppliers to provide equipment or raw materials, increased costs or reduced revenues, lack of skilled labor, lack of financing sources with satisfactory conditions or otherwise, unavailability of adequate real estate in the vicinity of the desired area, among others.

In addition, the expansion, optimization and construction of industrial plants may not be completed on schedule or may be completed in disagreement with the respective projects. Contractual breaches by equipment or services suppliers may lead to financial loss, project damage and breach of obligations to third parties. The indemnity obligations or guarantees provided by such suppliers may be insufficient to offset the losses to which the Company could be subject.

Any failure or non-compliance with the implementation of growth and/or expansion projects of existing plants may have a negative impact on the Company’s financial condition and business.

The lease of properties where the Company’s industrial units are located exposes the Company to risks of continuity of its operations in certain locations.

The Company leases the properties where the industrial units of Manaus and Curitiba are located, as well as offices located in São Paulo and Minas Gerais, as informed in Item 9.1 (a) of this Reference Form. The Company may be required to vacate the leased properties in advance or otherwise be unable to renew the lease agreements with acceptable terms or may not be able to renew them at all. If the Company is unable to negotiate new lease agreements for its industrial units, it may be subject to increases in rents, delays in product delivery, decreased sales revenue, demobilization costs, among others. Should any of these occur, the Company may have its business, finances and operating results adversely affected.

Significant disruptions or breaches in the security of the Company’s online platforms or information technology systems may adversely affect its business.

The Company’s online platforms and information technology systems are susceptible to damages caused by disruptions or shutdowns due to power outages, hardware failures, structural or operational failures, computer viruses, hacker attacks, other data security issues, telecommunications failures, user error, fraud, catastrophes, undue or unexpected updates to the system or software, integration or migration issues, or other unforeseen events. Violations or disruptions of the Company’s online platforms or information technology systems, breaches of confidential information, data corruption or other data security issues, may adversely affect the Company’s brands, reputation, relationships with customers or business partners or the perception of consumers or investors in relation to the Company, as well as its business and products.

The protection of confidential customer and network information may be affected by failures in the Company‘s security systems, which could damage the Company‘s reputation and brand, and materially affect its business and operating results.

The Company relies on encryption and electronic authentication technology to securely transmit the confidential information of its customers, including credit card numbers. In addition, the Company stores data from its customers. Any failure to protect the data of customers could damage the Company’s reputation and brand, and materially affect its business and operating results.

Accordingly, the Company may have to significantly increase the resources used to protect against cyber threats or attacks, which could have a material adverse effect on its finances and operating results.

In addition, in August 2018, Law 13709/18 was enacted, regulating personal data processing and establishing principles and rules applicable in all economic markets and contractual relationships (the General Act of Personal Data Protection or LGPD). LGPD establishes detailed rules to collect, use, process and store personal data applicable to any relationship, including customers and employees, in physical or digital environments. Obligations set forth in the LGPD will come into effect 24 months after published. As a result of the LGPD and other applicable privacy rules and regulations, the Company‘s activities may be affected, requiring additional investments and increased technical and organizational security resources, which could have a material adverse effect on its finances and operating results.

The Company may not be able to make partnerships and/or acquisitions deemed strategic or attractive at the right time and under the desired terms or prices, which may affect the results and reputation of its brand. Additionally, the partnerships and/or acquisitions may not bring the expected results.

The Company cannot guarantee that any acquisitions or investments will produce the expected results or that they will not negatively affect the Company’s results, as well as the reputation of its brand. Additionally, the Company may not be able to identify new opportunities that are attractive. Furthermore, the cash generation from its operating activities may not be enough to support its expansion plans, requiring additional debt or additional securities issued to fund its growth. If the Company is not able to obtain financing or obtain financing on acceptable terms, there is a risk that its business and growth plans will have to be reviewed, adversely affecting its operating results and financial condition, as well as the market price of the Company’s shares. In addition, there may be difficulties to integrate acquired companies and the Company, as well as diversion of funds and attention of the Company‘s management to other business issues and opportunities. The Company may not be able to successfully integrate the acquired operations, which may adversely affect its business and financial condition.

The Brazilian securities market is known for its volatility and lack of liquidity, which may substantially limit the ability of investors to sell the Company’s shares in the future at the desired price and time.

The Brazilian securities market is substantially smaller, less liquid and more concentrated than the world’s main securities markets and may even be more volatile than some international markets, such as the United States. The Brazilian capital market is significantly concentrated; therefore, the top ten shares traded on B3 accounted for around 46% of the total volume of shares traded on B3 in 2018. B3 had an average daily trading volume of R$12.3 billion in 2018, while the New York Stock Exchange had an average daily trading volume of US$6.7 billion in 2018.

Thus, investing in securities traded in emerging markets such as Brazil (generally considered to be more speculative in nature) entails a greater risk when compared to other world markets, such as the United States, which have more stable political and economic conditions.

These investments are subject to certain economic and political risks, such as, among others: (i) changes in the regulatory, tax, economic and political environment that may affect the ability of investors to obtain the full or partial return on their investments; and (ii) restrictions on foreign investment and repatriation of invested capital.

These characteristics of emerging capital markets, particularly the Brazilian market, may substantially limit the ability of investors to sell the Company’s common shares held by them at the desired price and time. If an active and liquid trading market is not developed and maintained, the trading price of the Company’s common shares may be adversely affected.

The Company may be adversely affected by violations of the Anti-Corruption Law and/or other anti-corruption laws applicable.

Law 12846 of August 1, 2013 (Anti-Corruption Law) introduced the concept of objective liability of legal entities involved in acts the harm the public administration, national or foreign, subjecting the violator to civil and administrative sanctions. Failure to comply with anti-corruption laws, any investigations of misconduct or administrative, court or arbitration proceedings against the Company, its officers, board members, employees or other individuals related to or acting on the Company’s behalf or benefit, may lead to a fine, loss of business licenses and damages to the reputation, as well as other sanctions provided for in the applicable regulations, which may materially adversely affect the Company‘s business, image and financial condition.

Additionally, the Company’s governance processes, policies, as well as risk management procedures, internal controls and compliance may not be able to detect (i) violations of the Anti-Corruption Law or other related violations, (ii) occurrences of fraudulent and dishonest behavior by its officers, board members, employees, individuals and legal entities hired and other agents that may represent the Company; (iii) the appropriate mitigation of the risks that its risk management policy currently identifies and/or the predictability to identify new risks to which the Company may be exposed, and (iv) other occurrences of behavior not consistent with ethical and moral principles, which may materially and adversely affect the reputation, business, financial condition and operating results of the Company, or the market price of its common shares. Thus, irregularities in this regard may result in penalties, fines or sanctions that may affect the Company’s business and image.

The Company is subject to risks related to the non-compliance with Data Protection laws (national and international) and may be adversely affected by fines and other sanctions.

In 2018, the General Law of Data Protection (Law 13709/2018 – “LGPD”) was enacted, which will come into force in August 2020 and will change the personal data protection system in Brazil. The LGPD establishes a new legal framework to be observed when processing personal data and provides, among others, the rights of personal data owners, the legal bases applicable to the protection of personal data, the requirements to obtain consent, the obligations and requirements regarding security incidents, leaks and data transfers, as well as authorization to create the National Authority of Data Protection. If the Company and its subsidiaries do not comply with the LGPD, they may be subject to isolated or cumulative sanctions of warning, incident disclosure obligation, temporary block and/or removal of personal data and a fine of up to 2% (two percent) of the revenues of the company, group or conglomerate in Brazil in its last fiscal year, excluding taxes, up to the total amount of fifty million reais (R$50,000,000) per breach.

Thus, failures to protect personal data processed by the Company, as well as the non-compliance of applicable law, may result in high fines for the Company, disclosure of the incident to the market, removal of the personal data from the database, and even suspension of its activities, leading to greater image risks, as well as negatively affecting the Company’s reputation and results.

The Company may be held responsible for damages caused by its products to consumers or third parties, which could adversely affect its results.

In Brazil, the consumer protection law is strict regarding consumer protection. Consumer protection law places the burden of proof on the company, when facing a customer’s claim. Consumer protection may be exercised through individual or collective proceedings and, in the case of collective proceedings, lawsuits may be filed by state or federal authorities through direct or indirect public administration bodies, notably the Public Prosecutor or PROCON, with the purpose to protect the consumer rights, or by organizations of consumer rights protection. Lawsuits or administrative proceedings may be filed on the grounds that our products were deteriorated, tampered with, or did not include adequate information, among others.

If we are held liable or convicted for defects, errors or failures of our products (including accidents) in a lawsuit, such decision could have a material adverse effect on our business, reputation, brand, operating results, financial results and cash flow and negatively affect our profitability.

In addition, filing a defense in a lawsuit holding the Company liable for product defects may require a high additional cost, as well as substantial attention and time from our administrative and technical personnel. In addition, the negative publicity that could be generated about defects, errors or failures in our products (including accidents) and their quality could adversely affect our reputation with current and future consumers, as well as our corporate image and our brands, which could have a material adverse effect on our business and financial condition.

The Company is subject to risks related to unauthorized or improper use of its intellectual and/or industrial property.

The Company is subject to the appropriation and inappropriate use of the Company‘s solutions, as well as to legal and administrative proceedings regarding intellectual or industrial property. Improper use of the software and/or hardware by the user may also lead to a fine to the Company, which may lead to significant costs and the use of resources not intended for this purpose, as well as the attention of the Company‘s management and technology team, which may adversely affect the Company’s business, competitive position, financial condition, operating results and cash flows.

Changes or different interpretations in the tax laws may adversely affect the Company‘s results.

The Legislative and Executive Powers have frequently made changes in the tax system for domestic industries, especially those encouraged, such as the technology industry, which may affect the Company. As an example, we can mention, among others, the change of tax rates and the suppression of tax exemptions and the method to calculate certain taxes. Some of these changes may increase the Company’s tax burden, which may affect its business and, therefore, materially and adversely affect its profitability.

The Company currently receives certain tax benefits and incentives and has certain special tax systems due to the production of computer equipment through the Basic Production Process (PPB). Given the current political and economic environment in Brazil, is not possible to guarantee that such incentives and benefits, especially those not related to industrial production in the Manaus Exempt Region, will be maintained. If the Company is unable to renew its tax incentives or if such incentives are changed, limited, suspended or revoked, the Company may be adversely affected. In addition, certain tax laws may be subject to controversial interpretation by tax authorities. The Company may be adversely affected if tax authorities interpret tax laws in a way inconsistent with the Company‘s interpretations.

The Company‘s internal controls may not be enough to prevent or detect any non-compliances with the applicable law or our internal policies.

The Company’s internal controls may not be enough to prevent or detect any misconduct, fraud or violations of applicable laws by its employees and members of its management or by third parties acting on behalf or for the benefit of the Company. If the Company’s employees or other persons related to the Company or acting on behalf of the Company engage in fraudulent, corrupt or unfair practices or otherwise violate the applicable laws and regulations or our internal policies, we may be liable for such violations, which may lead to penalties, fines or sanctions that may materially and adversely affect the Company’s business and image.

The Company may require additional capital in the future by issuing securities, which may result in a dilution of the investor‘s interest in the Company’s shares.

The Company may be interested in raising funds in the capital market by issuing shares and/or by publicly or privately placing securities convertible into shares. Raising additional funds by publicly issuing shares, which may not provide preemptive rights to the Company’s shareholders, may lead to the dilution of the investor’s interest in the Company’s share capital.

The Company may not pay dividends to its shareholders.

According to its Bylaws, the Company must pay to its shareholders 25% of its adjusted annual net income as mandatory dividend. The net income may be capitalized, used to offset losses or retained, as provided by the Brazilian Corporation Law, and may not be available to pay dividends. The Company may not pay dividends to its shareholders in any fiscal year if the management state at the Shareholders’ Meeting that such payment is not advised given the Company’s financial situation.

The Company‘s Bylaws includes provisions that may discourage acquisitions transactions, preventing or postponing transactions to which investors are in favor.

The Company’s Bylaws includes provisions that prevent the concentration of the Company’s shares in a small group of investors, thus promoting the dispersion of shares. One of these provisions requires any shareholder (other than those who are already shareholders of the Company on the day of its IPO was announced, and other investors who become shareholders of the Company in certain transactions specified in its Bylaws) that holds 10% or more of the Company’s share capital (excluding treasury shares and involuntary capital increases, as specified in its bylaws) to hold a public offering of all outstanding shares at a price established in accordance with the bylaws within 30 (thirty) days after the acquisition of the aforementioned interest. These provisions may discourage third parties from acquiring the control of the Company in transactions that would entitle our holders to sell the shares to such third party (tag along), which could have a material adverse effect on the Company and its shareholders.

Part of our revenues depend on participating and having success in bids. If a significant part of these bids is canceled or if we do not win the bid, we may be adversely affected.

Part of our revenues is linked to the existence of new bids and to being winners in such processes. If the Federal Government or State or Municipal Governments do not start new bids, if our bid does not prevail over others, or if the price provided for in our bid proves to be higher than the prices offered by other competitors, or for any other reason, if we are not winners of the bid, our revenue may be impaired.

The Company may not be able to protect its intellectual property rights.

The Company’s future success significantly depends on its ability to defend its current and future intellectual property rights, including trademarks, patents, know-how, research and development projects and domain names. The Company cannot guarantee that all trademarks and patent registrations will be granted when filed by the Company with the appropriate agencies. There is also a risk that the Company may fail to renew a trademark or patent in a timely manner or that its competitors may contest, invalidate or misuse any existing or future trademarks and patents held or licensed to the Company.

If the Company is unable to protect its intellectual property rights, this could have a material adverse effect on its business and financial condition.

b. to its direct or indirect controlling company or control group

The Company’s controlling shareholders may make certain decisions regarding its business that may conflict with the interests of its investors.

The Company’s controlling shareholders may take measures that may be contrary to the interests of its investors, including corporate reorganizations and dividend payment conditions. The controlling shareholders have effective control of the Company, electing the majority of the members of its Board of Directors. The decision of the Company’s controlling shareholders regarding its path may differ from the decision expected by its minority shareholders.

c. to its shareholders

There are no material risks involving the Company whose source is its shareholders.

d. to its subsidiaries and affiliates

Risks related to subsidiaries and affiliates are the same as those related to the Company.

Negative results of subsidiaries may adversely affect the Company‘s operating results.

The Company holds direct and indirect interest in several companies. Accordingly, part of its results derives from the results of these companies and, as such, their unsatisfactory results may adversely affect the Company‘s results. The Company’s results and its ability to distribute dividends to its shareholders depend on the operations, cash flow and profits of its subsidiaries and jointly controlled companies. Therefore, it is not possible to guarantee that the profits of subsidiaries and companies under joint control will be transferred, which could have a material adverse effect on the Company’s financial results, affecting the distribution of dividends to its shareholders. Additionally, the worsening of the industry and market conditions in the operations of these businesses may negatively affect the consolidated results of the Company‘s operations.

e. to its suppliers

The Company may have both its production and its revenues hindered due to delays and non-compliance by its suppliers.

The Company’s activity is characterized by maintaining an adequate inventory level to meet the needs of its operations. The Company has a limited number of suppliers, given the characteristics of the worldwide component industry, and it is not possible to guarantee that the Company is shielded from any delays or non-compliance by its suppliers, nor to predict the impacts of these delays and non-compliances in the Company’s production, sales and revenue performance. Such dependence may have an adverse effect on the Company in case of any delays or non-compliances. Additionally, any delays in the delivery of inputs purchased from its suppliers, as the case may be, may affect the production capacity, which would have an adverse effect on the Company. Impacts on revenues may even arise from situations beyond the delay in production, such as the recent Federal Revenue Service strikes, or inconsistencies in the distribution network.

In May 2018, for example, there was a truck drivers’ strike in Brazil, mainly due to the increase in the country’s fuel prices, paralyzing part of the road transportation throughout Brazil. The Company cannot guarantee that other strikes or stoppages will not occur in the future. Any strikes or stoppages involving the transportation channels used by the Company, its suppliers and/or contractors may adversely affect the Company’s operating results and financial condition.

The Company may be affected if its suppliers use irregular practices.

The Company may be adversely affected if its suppliers experience problems related to labor or sustainability issues, employment of child or slave-like labor, and improper safety conditions or even if they use these or other irregularities to have a lower cost for its products, as well as if its suppliers perform acts, for the benefit or interest of the Company, that violate the applicable anti-corruption law (including, but not limited to, Law 12846/2013 and Decree 8420/2015). The result of such actions may go beyond administrative or judicial sanctions of the anti-corruption law (ranging from administrative fines to prohibition of receiving incentives from public bodies or entities) but may also damage the image and quality of the company’s products. As a result, the Company may lose the attractiveness to its customers, adversely affecting its net revenues and operating results, as well as the price of its shares and its reputation.

Additionally, with LGPD becoming in force in August 2020, the Company will need to be aware of possible irregular practices of suppliers with whom it exchanges personal data, considering that in case of security breach or divergence of purpose in the data processing, the Company can be held joint and several liable with the supplier, which could adversely affect its net revenue and operating results, as well as the price of its shares and its reputation.

f. to its customers

Significant part of the Company’s sales is concentrated in large retail chains.

A significant part of the production of computer and mobile phone companies is distributed through the retail market. The concentration of the retail market in a few large companies increases their bargaining power in the regions in which they operate and, as a result, these companies may use their market power to reduce prices practiced by the companies in the industry, which may have an adverse effect to the Company. The concentration of the retail market and the continuation of this phenomenon may lead to a reduction in the customer base of companies in the segment, including the Company, increasing its dependence on large retail groups, and thus increasing the bargaining power of such customers, which may have an adverse effect on the Company.

Positivo Tecnologia is subject to sanctions due to breach of contracts entered into with the public administration in general, as well as unilateral termination of such contracts due to public interest, which could adversely affect its ability to participate in other public bids and/or have an adverse effect on the Company.

Contracts for the supply of goods to the public administration are governed by Federal Law 8666/93 and its subsequent amendments, as well as by the respective state or municipal laws to which each public entity is subject, including, in most cases, Federal Law 10520/02. In addition to the provision of computers and software, the Company undertakes, in most cases, the obligations to maintain the goods supplied to the entities, to provide warranty for products and to provide technical services. In some cases, the Company guarantees the compliance of its obligations with such public entities through a collateral, insurance or letter of guarantee, valid until the end of the warranty periods of the products.

If the Company is held liable or convicted for irregularities, errors or failures in the supply of goods or services contracted, the Company may be warned by the public administration, suffer significant contractual fines, have the guarantees executed, have the supply of goods and services temporarily suspended, as well as may be barred from bids and contracting with the government or the specific entity related to the contract in question. Such sanctions, as well as the unilateral termination of contracts due to public interest, may affect the Company’s brand, operating results, financial results and cash flow, and may negatively impact its profitability over a period of time.

The terms to receive payment from government customers are usually longer than those in the retail and corporate markets. The growth in sales to this segment could lead to increased working capital requirements, resulting in greater exposure to the Company’s cash flow.

The Company is exposed to credit risks from its customers.

A significant part of the Company’s sales is concentrated in large retail chains. If any of these large networks delay their payments or fail to meet their contacts with the Company, their financial condition, operating results or cash flows may be adversely affected.

Positivo Tecnologia is subject to consumer and judicial complaints and product defects, which could negatively affect its image and have an adverse effect on the Company.

If the Company is held liable or convicted for defects, errors or failures of our products in a lawsuit or administrative proceedings, such decision could have a material adverse effect on the Company’s business, reputation, brand, operating results, financial results and cash flow and negatively affect its profitability. In addition, a defense in a lawsuit holding the Company liable for its products or services may require an added high additional cost, as well as substantial attention and time from our administrative and technical personnel. In addition to the liability in a lawsuit, the negative publicity that could be generated about defects, errors or failures in its products and their quality could adversely affect its reputation with current and future consumers, as well as the Company’s corporate image and brands, which could have a material adverse effect on its business and financial condition.

g. to sectors in which the issuer operates

The raw materials and/or components used by Positivo Tecnologia are imported or directly or indirectly linked to the US dollar. A sudden and unexpected change in prices could have a material adverse effect on the Company.

The main raw materials imported by the Company are processors, memory components and motherboards, which account for most of the costs with its raw materials. In addition, another part of this item comes from the acquisition of domestic raw material, indirectly linked to US dollar. Because these raw materials are imported or have prices indirectly linked to US dollar, their prices and/or their components fluctuate according to the worldwide change of supply and demand, as well as according to the US dollar exchange rate. Historically, the prices of these raw materials in the foreign market have changed due to several factors over which the Company has and will not have control.

If there is a significant variation in the prices of raw materials for the production of computers and mobile phones, manufacturers will need to transfer this change to the final product, increasing the price for the customers. Such transfer may not be possible for a certain period, which may temporarily decrease the profit margin of this industry and adversely affect the Company. In addition, a significant increase in prices of raw materials may increase the final price of these commodities offered by industry and thus reduce part of the demand from lower-income consumers, reducing the size of the market as a whole and, therefore, having an adverse effect on the Company‘s sales.

The Company is subject to possible delays due to strikes at customs, ports and the Federal Revenue Service.

Singe a good part of the raw materials and/or components used by the Company are imported, transported by air or sea, as the case may be, possible strikes of the Federal Revenue Service, customs, airports and ports throughout the country may affect the delivery of these materials by the supplier and, therefore, the Company’s production capacity, which may materially affect the Company. In addition, possible logistics failures in the transportation of the Company’s raw materials and/or components may adversely affect its production capacity.

The Company operates in highly competitive segments, with competitors ranging from small companies to large multinationals.

The Company faces a tough competition with a concentrated group of domestic and foreign competitors. In the retail market, which represents the largest volume of sales for the Company, the main competitors are companies belonging to multinational groups that have global operations, state-of-the-art technology and likely access to financial and capital markets at lower costs and longer terms than those to which the Company and other domestic groups have access. Such multinational groups have the advantage of scale with large world suppliers to acquire some components whose global scale is relevant and which, according to the rules of the Basic Production Process (PPB), can be acquired abroad.

The Company also faces competition from small local producers that are well accepted in certain markets, some of which operate in the gray market and thus may offer lower prices, which may lead to lower prices and decrease of the Company’s sales and margins. In addition, new competitors may enter the markets in which the Company operates.

The Company’s market share may go down if unable to remain competitive, particularly maintaining the prices of its products or services in line with the budgets of its customers, or if the competitors acquire or launch new products that compete with the Company’s products or add new features to existing products, including designs and technological advances that the Company cannot foresee. The high level of competition in the industry in which the Company operates may limit its growth capacity and pressure the prices of its products and services down, reducing its revenues and adversely affecting its business, operating results, financial results and cash flow.

The Company’s results may be affected by the performance of the Gray Market.

The Gray Market[1], as mainly supported by tax evasion, thus reducing its costs, is a competitor in the computer market, which concentrates mainly the small and medium enterprises (SMEs) segment of the corporate market. In 2018, the market share of the gray market was of 6.1% in computer sales in Brazil, up 1.1 p.p. over 2017. This behavior was observed mainly in the computer segment focused on the gamer audience. The Company cannot guarantee that the gray market will continue to have little relevance in the sale of computers and mobile phones if there is an increased demand for portable equipment and more basic settings, with the illegal import relatively easier due to their reduced size, the market share of the gray market in Brazil could increase. Any growth of the gray market could adversely affect the Company‘s business.

The Company may be substantially affected by the decrease in purchasing power of Brazilian consumers and unfavorable economic cycles, given the sensitivity of its operating industry to such factors.

The Company’s operations depend on several factors related to consumer income, which vary due to several factors such as interest rates, inflation, availability of consumer credit, taxes, consumer trust in future economic conditions, employment rate and salary levels, historically affected by the Brazilian GDP’s growth rate. In this sense, the retail market, including the Company itself, has historically suffered from periods of economic slowdown due to falling consumer spending.

In addition, demand for the Company‘s products varies and is affected by the growth rate of Brazil‘s urban population. Any decrease or deceleration in the pace of such growth may adversely affect the Company’s sales and operating results.

h. compliance and legal and regulatory aspects of the segments in which the issuer operates

The Company is the holder of federal and state tax benefits granted to the computer industry and the suspension. The cancellation or non-renewal of such benefits may adversely affect the Company’s results.

The Company, like its competitors, has tax incentives for the production of computer goods, both at state and federal levels. Among the federal incentives, it should be highlighted the decrease of the IPI tax rate and the application of the import tax reduction ratio (CRA), provided for in Decree Law 288/1967. The IPI reduction is provided for in Law 8248/1991, which deals with the production of computer goods with Basic Productive Process (PPB) and Law 8387/1991, which deals with the same production in the Manaus Exempt Region.

The Company benefits from the stimulus credit of ICMS in the State of Amazonas, which includes a reduction to zero of ICMS in the operation of computer products produced with PPB in Manaus Exempt Region.

The Company is also the beneficiary of the presumed ICMS credit in the State of Paraná, which includes a reduction to zero of ICMS in the operation of computer products.

The Company also benefits from the special ISS tax rate for the provision of services related to technological development located in the incentive areas of Curitiba (Curitiba Industrial City), subject to the 2% ISS tax rate for services under the TECNOPARQUE Program.

Pursuant to the provisions of the current law and the respective granting acts, the Company is subject to (i) minimum annual investment in research and development (R&D), as described in Item 10.8.a “i” of this Reference Form; (ii) annual report to the due authorities, mainly MCTIC and SUFRAMA; and (iii) compliance with the Basic Productive Process (PPB), approved by the respective inter-ministerial decrees and resolutions.

New regulations issued by the federal government at the end of 2018 allowed the Company to comply with part of the R&D obligations required by the Computing Law by investing in technology-based companies through an Investment Fund established by the Company, sole shareholder.

It is not possible to guarantee that, after the expiration of its term or after an act by the Legislative or Executive Branch, the tax incentives currently benefiting the Company will not be revoked, especially those linked to the production of the Manaus Exempt Region, or that the Company will be able to obtain new tax benefits on favorable terms, which may have a material adverse effect on the Company. Complying with all PPB rules is complex, as there are frequent changes and the criteria imposed by the authorities are not always sufficiently clear, creating considerable risk for the Company.

In 2016, the World Trade Organization (WTO) issued a report challenging policies to encourage Brazilian industry, including the one provided for in Law 8248/1991 (Computing Law). Said challenge was tried in 2017 and in 2018 the decision was confirmed. After the final decision of the WTO challenge, under penalty of international sanctions, the federal government will make significant changes to the text of the Computing Law, which may represent a reduction in the tax incentive granted to domestic manufacturers and/or allow access of such incentives to imported finished products. The final proposal to amend the law to comply with the WTO decision has not yet been released by the Brazilian Government. On September 3, 2019, the State Representatives of the Joint Parliamentary Front for the Development of the Electrical and Electronic Industry filed Bill 4805/2019 which, in summary, replaces the IPI exemption by different tax credits, but of similar level to those in the original wording of Article 4 of Law 8248/1991. Depending on changes in the structure of tax incentives after the adoption of a new law, the cost of production and, therefore, the price of products on the market could increase, which would reduce the competitiveness of domestic products when compared to those imported. Moreover, among the possible results of these changes, there may be a reduction in the component’s nationalization index, with a consequent increase in the proportion of imported inputs, which may lead to a decrease in the competitiveness of local manufacturers when compared to multinational groups that have a larger global scale of purchases with international suppliers. The benefits of the Manaus Exempt Region are not included in the European Union and Japan’s challenge filed at WTO and, according to Articles 40 and 92-A of the ADCT, must be maintained until 2073.

In the last fiscal years, the Company accumulated, mainly until 2015, before the migration of its production to Manaus, ICMS credits arising from the acquisition of inputs and presumed credit in trade operations carried out by the unit located in the State of Paraná. The accumulation originated in State Decree 5375/2002 and, subsequently, by Decree 1922/2011, which grant presumed ICMS credit so that the actual tax burden results in 0% in the output of certain products. Such credits may not be realized if the Company does not achieve, in the coming periods, a satisfactory evolution of certain business plans.

Suspension, change, cancellation or non-renewal of our federal and state tax incentives may adversely affect our results.

We cannot guarantee that there will not be a tax reform that could lead to changes in tax benefits and incentives granted to the Company, especially those not intended for the Manaus Exempt Region, nor that tax incentives and benefits will remain under current conditions (amount and effectiveness) until the end of their term.

Nor can we guarantee that new tax incentives will be created after the expiration of these incentives. If the tax incentives change or expire and we are unable to renew them or new tax incentives or benefits are not created after the expiration of those in force, we will be materially and adversely affected.

i. to foreign countries where the issuer operates

The increased competitiveness of the Argentine market may materially affect the revenues obtained by the Company from its Joint Venture in such country.

At the end of 2010, the Company created a joint venture with the Argentine company BGH Sociedad Anonymous (“BGH”), which led to the formalization of the jointly controlled company Informática Fueguina S.A., which has the purpose to manufacture and trade computing products to the Argentine market. In early 2014, the brand accessed the Uruguay market with the sale of educational laptops to the government. Therefore, the Company accessed a third market. In late 2014, the joint venture announced the expansion of its operations to the African continent by signing a contract with the Rwandan government to produce and sell Positivo BGH’s educational devices in the domestic market. In 2016, the joint venture started supplying educational computers and tablets in Kenya through a contract with the local government. Due to the nature of the transaction, the main risks are the joint management between the Company and BGH, the remote production and the exploration of new markets. Accordingly, the future results of this joint venture may be adversely affected by possible conflicts between shareholders, logistical difficulties and acceptance of products by local consumers. In addition, there may be restrictions on foreign currency remittances, including dividends, as well as difficulties to import the inputs given the need for prior authorizations from local authorities, as well as difficulties and penalties related to the compliance with the foreign government’s laws and regulations. The Company may also face difficulties related to adverse competitive conditions, different legal and regulatory environment, political and economic instability, as well as foreign exchange risks similar to those in the Brazilian operation due to the mismatch between currencies, since most of costs with inputs are linked to US dollar and the products are traded in local currency.

In April 2017, the Argentine government reduced the computer import tax rate to 0%, making local production less competitive. At the end of 2016, due to government signs on this change, the joint venture decided to close the production at its main industrial plant, located in the Province of Tierra del Fuego, Antarctica and the Islands of South Atlantic. Future sales to the Argentine retail market are planned and should come true through the import of computers and tablets. At this time, there is no way to guarantee that this joint venture will remain as competitive as it is, given the expectation of increased market share competitions with multinational companies, which could materially reduce the joint venture’s revenues in the local retail market.

j. to social and environmental issues

Failure to obtain and/or renew environmental licenses and/or permits may subject the Company to criminal, administrative and/or civil liability.

The Company is required to obtain environmental permits and/or licenses from government authorities for certain aspects of its operations, which must be renewed from time to time, as detailed in Item 7.5 of this Form. Failure to obtain and/or renew environmental licenses or the non-compliance with the conditions under these licenses may subject the Company to criminal, administrative (including disruption of its activities) and/or civil liability. Due to the possibility of changes in environmental regulations, future expenditures may occur.

Failure to comply with environmental laws and regulations may adversely affect the Company‘s business.

The Company is subject to federal, state and municipal law related to the preservation and protection of the environment. Among other obligations, this law establishes, among others, requirements on environmental permits and standards for sewage disposal, atmospheric emissions, solid waste management, noise emission, as well as requirements related to specially protected areas. In case of breach or non-compliance with such law, the Company may face administrative sanctions, such as fines, interdiction of activities, cancellation of licenses and revocation of permits, or may be subject to criminal sanctions (including the members of our management), without prejudice to the duty to repair the environmental damage caused in the civil sphere.

The environmental authorities may also significantly delay the issuance of the licenses and permits necessary for the development of the Company’s activities, thus generating adverse effects on its business. In addition, delays in the renewal of environmental licenses that have been filed after the minimum advance notice period required by the environmental agency may also harm the operation of the Company’s activities, as such licenses will not be automatically renewed until the final decision of the environmental agencies.

Costs to comply with current and future environmental, health and safety laws, and any contingencies arising from environmental damage and to affected third parties, may adversely affect the Company’s business, image, operating results and financial condition.

k. Macroeconomic Risks

The instability of the country’s political scenario may adversely affect the Company, negatively affecting its operating results and financial condition.

The performance of the Brazilian economy is historically affected by the political environment of the country. Political crises have affected, and continue to affect, the trust of investors and the general public in the Brazilian market, significantly affecting the economic slowdown and the increased volatility of securities issued by Brazilian companies. The recent corruption scandals currently under investigation by the Federal Prosecutor, such as “Operation Car Wash”, “Zelotes”, “Greenfield”, “Efficiency” and others, generate uncertainties and negatively affect the political environment and the Brazilian economy. Investigations into corruption schemes involve members of the Federal Government, the House of Representatives and employees of large companies, and negatively impact the overall market perception of the Brazilian economy. It is not possible to predict if new corruption scandals will arise or if there will be new developments related to ongoing investigations or their results on the Brazilian economy. On January 1, 2019, after a tumulted presidential dispute, a new government took office. The Company cannot predict the effects that the measures adopted by this new government will have on the Brazilian political, social and economic environment. In addition, political divisions highlighted in Brazil due to the elections may lead in deadlocks in Congress, troubles to implement government plans, political unrest, and massive demonstrations and/or strikes may adversely affect the Company‘s operations. In addition, uncertainties regarding the implementation of changes in monetary, tax and social security policies by the new government may contribute to the country’s economic instability and increase the volatility of the Brazilian capital markets. In addition, the Brazilian economy has experienced a sharp slowdown in recent years, in part due to the interventionist economic and monetary policies of the Federal Government in previous years linked to the global decrease in commodity prices. The current federal government is seeking to approve a tax reform to stimulate the economy and reduce the budget deficit, but it is uncertain of the government will get the necessary support in congress to approve additional specific reforms, such as the social security reform. Thus, the instability of the country’s political scenario and of the Brazilian economy may, therefore, adversely affect the Company, negatively affecting its operating results and financial condition, as well as its share price.

The Federal Government has significant influence over the Brazilian economy. This influence, as well as the Brazilian economic and political environment, could have a material adverse effect on our activities.

The Brazilian economy has undergone frequent interventions by the Federal Government, which sometimes makes significant changes to its policies and standards. Measures taken by the Federal Government to control inflation, in addition to other policies and regulations, often lead to higher interest rates, changes in tax policies, price controls, interventions in the foreign exchange market, capital controls and import restrictions, among other measures. We have no control over the measures and policies that the Federal Government may adopt in the future, nor can we foresee them. Our business, economic and financial conditions, as well as our operating results, could be materially affected by changes in policies or standards that involve or affect factors such as:

  • interest rates;
  • foreign exchange controls and restrictions on remittances abroad;
  • monetary policy;
  • foreign exchange fluctuations;
  • change of labor, legal and regulatory rules;
  • inflation;
  • liquidity of domestic financial and capital markets;
  • expansion or contraction of the Brazilian economy;
  • tax policy and changes in tax legislation;
  • control over import and export;
  • social and political instability;
  • public health policies, such as taxes or restrictions on the consumption of certain food groups (i.e. sugary drinks and/or fats); and
  • other political, diplomatic, social and economic developments that may occur in or affect Brazil.

Uncertainty about the implementation of changes by the Federal Government in policies or standards that may affect these or other factors in the future may contribute to economic uncertainty in Brazil and help increase the volatility in the Brazilian securities market and securities issued abroad by Brazilian companies.

The Federal Government’s actions in policies or standards involving the macroeconomic factors listed above may adversely affect our business and our sensitivity analysis to interest rate increases. In addition, changes in the common share price of publicly traded companies, lack of credit availability, cost reductions, global economic slowdown, exchange rate instability, higher interest rates in Brazil or abroad and inflation pressure may adversely affect, directly or indirectly, the Brazilian economy and capital markets, which could reduce the global liquidity and the investors’ interest in the Brazilian capital markets, adversely affecting the price of our shares, leading to negative consequences for our business, financial condition and operating results.

Inflation and measures of the Federal Government to fight inflation may significantly affect the economic uncertainty in Brazil and may adversely affect the Company‘s operating results.

Inflation and some of the measures taken by the Federal Government in its attempt to fight inflation, together with the speculation on any governmental measures to be adopted, have negatively and significantly affected the Brazilian economy, leading to an economic uncertainty in Brazil and to an increased volatility of the Brazilian securities market. According to the National Extended Consumer Price Index, released by the Brazilian Institute of Geography and Statistics, Brazil’s annual inflation rates for 2013, 2014, 2015, 2016, 2017 and 2018 were 5.91%, 6.41%, 10.67%, 6.29%, 2.95% and 3.75%, respectively. The Company cannot guarantee that the inflation will be lower than the 2018 inflation rate or that it will remain stable. For 2019, the inflation target was set at 4.25% (considering a tolerance range of 1.5 percentage points). In June, the accumulated IPCA for the year was of 2.23%.

The measures adopted by the Brazilian government to control the inflation included maintaining strict monetary policies with high interest rates and, thereby, restricting credit availability and reducing the economic growth. The Committee of Monetary Policy (COPOM) often adjusts the interest rates in situations of economic uncertainty to meet targets set in the Brazilian government’s economic policy. Inflation, as well as governmental measures to fight inflation and public speculation on possible future governmental measures, have produced significant negative effects on the Brazilian economy and led to an economic uncertainty in Brazil, increasing the volatility of the Brazilian capital market, which may have an adverse effect on the Company. Any measures taken by the Brazilian government in the future, including lowering interest rates, intervening in the foreign exchange market and implementing mechanisms to adjust or set the value of the Brazilian Real, may trigger the inflation, adversely affecting the overall performance of the Brazilian economy. If Brazil experiences a high inflation in the future, the Company may not be able to adjust its customer prices to offset the effects of inflation on its cost structure, which could increase costs and reduce the Company’s operating and net margins. In addition, in case of a rising inflation, the Brazilian government may opt for significantly raising interest rates. The increase in interest rates may affect not only the cost of our new loans and financing, but also the cost of the Company’s current indebtedness, as well as its cash and cash equivalents, securities and lease agreements payable, which are subject to interest rates. Accordingly, fluctuations in the Brazilian interest rates and inflation may adversely affect the Company, since it has loans and financing indexed to the variation of Interbank Deposit Certificate (“CDI”) and Official Long-Term Interest Rates (TJLP). On the other hand, a significant reduction in CDI, TJLP or inflation rates may adversely affect the income from its financial investments. For more information on the risks that variations in interest rates pose to the Company, see Item 4.2 of this Reference Form.

Exchange rate instability may adversely affect the Brazilian economy and may adversely affect the Company’s operating results.

The Brazilian currency has historically suffered ongoing devaluations against the US dollar and other stronger currencies over the last decades. In the past, the Federal Government has implemented several economic plans and used several exchange rate policies, including sudden devaluations, periodic small devaluations during which the frequency of adjustments varied from daily to monthly, floating exchange rate systems, exchange controls and two different exchange markets. Devaluation over shorter periods has resulted in significant exchange rate fluctuations between the Brazilian currency and the US dollar and currencies in other countries. For example, the devaluation of the real against the US dollar was of 13.4% in 2014 and of 47.0% in 2015. In 2016, there was a 16.5% appreciation of the real against the US dollar, while on December 31, 2017, the FY devaluation of the real against the US dollar was of 1.5%. In 2018, Real depreciated against the US Dollar by 17.1%. In June 2019, Real appreciated against the US dollar by 1.1%.

Given the volatility faced by the global economy, it is not possible to predict what the future variation of Real will be against the main currencies in the foreign currency market, nor can it be guaranteed that the Real will not devalue again against the US dollar. Depreciation of the Real generally hinders the access to foreign financial markets and may lead the Federal Government to intervene, including the adoption of anti-economic downturn policies. On the other hand, the appreciation of Real against the US dollar may lead to the deterioration of Brazil’s checking accounts and payment balance, as well as prevent the growth of exports. Accordingly, both situations mentioned above may adversely affect the Company’s business, financial condition and operating results. Depreciation of the Real against the US dollar may also create additional inflation pressures in Brazil, which may lead to increases in interest rates, adversely affecting the Brazilian economy and the Company’s results due to the contraction in consumption and the increase in the Company’s costs, as well as part of its raw materials and/or components for the manufacture of the Company’s products, which are directly or indirectly linked to US dollar. On the other hand, the appreciation of the Real may lead to the deterioration of the country’s checking accounts and payment balance, as well as a weaken the growth of export-generated gross domestic product. The Company does not have any influence on the exchange rate policy adopted in Brazil and does not have the ability to forecast what the policy will be. The Company’s business, financial condition, operating results and prospects may be adversely affected by changes in such foreign exchange policies.

Deteriorating economic and financial market conditions, in general, or the perception of risk in other countries, especially the United States and emerging market countries in which the Company operates, may adversely affect the Brazilian economy.

The reactions of investors to general economic and financial market conditions, risk perception in other countries, especially the United States, China and emerging market countries, as well as crises in other emerging market countries, may restrict our access to capital markets and undermine our ability to fund our future operations on favorable terms. Trade disputes between countries, in particular the current dispute between the United States and China, and other economic problems in emerging market countries such as Argentina and certain countries of the African continent where the Company operates, or elsewhere, negatively affect Brazil and our business may also be adversely affected.

In addition, we cannot guarantee that in case of adverse events in emerging market economies, international capital markets will keep their doors open to companies with significant operations in Brazil or that interest rates in these markets will be competitive for the Company. The decrease in foreign investment in Brazil may adversely affect the growth and liquidity of the Brazilian economy, which in turn may have a negative impact on our business. The interruption or volatility in the global financial markets may further increase the negative effects on the Brazilian economic and financial scenario, which may have a material adverse effect on the Company, including difficulties to refinance the Company’s loans and debt.